KNOT Offshore Partners LP (KNOP) was formed on February 21, 2013 to acquire shuttle tankers under long-term charters of five years or more.

KNOP initially comprised of a four-vessel fleet acquired from our Sponsor Knutsen NYK, and there was an initial public offering (IPO) for 7.45 million Common Units out of a total of 17.485 million. The offer was significantly oversubscribed and a further 20% additional units were sold (Greenshoe), public trading started on 18th April 2013. The IPO unit price of $21 equated to a market capital of $367.2 million.

The Carmen Knutsen was acquired in August and by the end of the year the average age of the fleet was 3 years 1 month old (the same as at IPO).

The first Distribution for Q2 was pro-rated from the Minimum Quarterly Distribution of 0.375 (0.31731) this was then increased to 0.435 per quarter from Q3.

The Partnership reported full year income of $15.1 million and paid distributions of $20.8 million. The distributable cash-flow coverage was estimated at around 1.29 to the end of the year.

At the end of 2013 the unit closed at around $28 giving a market cap of $492 million and a pay-out of 6.2% as an annualised percentage of the Q4 distribution. Closing consolidated debt was $313 million.

KNOP acquired 3 vessels from the Sponsor Hilda and Torill Knutsen in June and Dan Cisne in December.

Finance was obtained from the proceeds of an equity offering again over subscribed 5.24 million units issued (including Greenshoe).

The 5 vessels in KNOP before the acquisitions were all refinanced reducing margins and increasing debt levels, the market was favourable, and the acquisition program increased.

The Distribution was increased in Q3 to $0.49. The Partnership reported full year income of $27.4 million and paid distributions of $40.2 million. The distributable cash-flow coverage was estimated at around 1.17 for the year.

At the end of 2014 with 22.83 million units issued, the unit closed at $22.67 giving a market cap of $508 million and a pay-out of 8.8% as an annualised percentage of the Q4 distribution. Closing consolidated debt was $613 million.

KNOP acquired 2 vessels from the Sponsor Dan Sabia in June and Ingrid Knutsen in October.

The finance was obtained from the proceeds of an equity offering in May with 5 million units issued when the unit price was around $25.
With the additional vessels the distribution was increased to $0.52 for Q3, and the Partnership continued to deliver consistently stable results.

Despite this because of a combination of factors beyond KNOP’s control the unit price fell, and KNOP launched a repurchase program at the end of the 3rd quarter to be used to stabilise the unit price.
We saw a lot of price volatility the unit dipping briefly below $10, this led to a buyback and cancellation of 180,906 units for an average price of under $13.

The Partnership reported full year income of $40.4 million and paid distributions of $56.9 million. The distributable cash-flow coverage was estimated at around 1.18 to the end of the year.

At the end of 2015 with 27.75 million units issued, the unit closed at $13.53 giving a market cap of $375 million and a pay-out of 15.4% as an annualised percentage of the Q4 distribution. Closing consolidated debt was $672 million.

KNOP continued to deliver stable results and held its first investor day the unit price subsequently recovered much of its lost ground during the year.

KNOP acquired Raquel Knutsen in December through debt M$25 of a M$35 revolver was drawn, and a M$25 Seller Credit advanced.

Given market volatility and the lower unit price distribution remained stable at $0.52 per quarter with a pay-out of 9% as an annualised percentage of the distribution. Closing consolidated debt was $672 million.

The Partnership reported full year income of $61.3 million and paid distributions of $61.4 million. The distributable cash-flow coverage was estimated at around 1.26 to the end of the year.

At the end of 2016 with 27.75 million units issued, the unit closed at $23.60 giving a market cap of $655 million and a pay-out of 8.8% as an annualised percentage of the distribution. Closing consolidated debt was $717 million.

An ambitious acquisition program following the better unit price was undertaken with 4 vessels added to the fleet during 2017: the Tordis, first quarter; the Vigdis, second quarter; Lena, third quarter; and Brasil, fourth quarter.

The Partnership had of necessity a very active year raising capital. The MLP made two preference unit and two common unit issuances.

In January KNOP completed an equity offering for 2.5 million units, when the unit price was around $24, and with the unit price over $23 a second equity offering was completed in November for 3 million units.

In February and June, the Partnership issued and sold in private placements 3.75 million Convertible Preferred Units at a price of $24 per unit, they are perpetual and pay quarterly distributions with an annual rate of 8%.

The Partnership reported full year income of $68.1 million and paid common unit distributions of $67.2 million. The distributable cash-flow coverage was estimated at around 1.26 to the end of the year.

At the end of 2017 with 33.31 million units issued, the unit closed at $20.75 giving a market cap of $781 million and a pay-out of 10% as an annualised percentage of the distribution. Closing consolidated debt was $1,027 million.

For the first quarter of 2018, the partnership generated its best set of results on both an aggregate and a per unit basis.

By the end of January both the Hilda and Torill Knutsen had been refinanced with more debt and lower margins, helping accelerate the fleet growth.

Our latest acquisition Anna Knutsen was completed from the Sponsor in March.

KNOP and its Sponsor operate a sizeable fleet of shuttle tankers, so redeployment is relatively straightforward. KNOP nevertheless operates these strategic assets with pass-through contracts and for the end user they are a vital component of their supply chain. Given these factors the vessels are relatively easy to secure significant levels of financing against which is taken advantage of to maintain the distribution. It does mean that our debt levels are probably higher than many MLPs when compared to income.

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